| Summary: | Master of Agribusiness === Department of Agricultural Economics === Allen M. Featherstone === The Agriculture Equipment Manufacturing industry is a $42 billion dollar industry in the
United States. The Agricultural Equipment industry is very competitive across all market
segments, especially in the less than 100 horsepower category (<100hp). This tractor
category consists of 4 sub categories: <20hp, 20-40hp, 40-60hp, and 60-100hp. The
<100hp tractor segment accounted for 170,547 of the 207,833 tractors that were sold during
the 2014 year. Compared to the over 100 horsepower category (100+hp) that has fewer
competitors, the <100hp segment is more competitive with more manufacturers competing
for market share.
Company XYZ is a full line manufacturer of agricultural equipment, harvesters, and
construction equipment. Company XYZ lost some ground in market share due to the
increased competition from new entrants into the market place as well as established
manufacturers increasing their presence. To be more competitive, Company XYZ is
looking at industry best practices to see how they can increase market share. One of these
practices is a terms bank. A terms bank allows a dealer to stockpile unused months of
terms to be used at a later date on tractors with expired terms. This minimizes financial
risk for dealers to stock inventory. The cost to stock inventory is a large expense that
dealers must carefully manage. One of the biggest costs of stocking inventory is the
interest paid for tractors that have exhausted their interest free terms. A terms bank may
lower the amount of interest that a dealer pays. It also lowers the cost to stock inventory
and allows the dealership to manage and reduce these costs and risks. Evaluating the
factors associated with stocking inventory, especially interest rate, will help manage
inventory costs and stocking levels. This thesis uses regression analyses to analyze the
costs of stocking units and the effect it has on dealership revenues. A regression analysis
will test the hypothesis that lowering the interest portion of the cost of stocking inventory
will increase sales. Data were gathered for dealership groups in the Western United States
on a monthly basis for the years 2008 – 2014. The results supported the hypothesis that
lowering the interest rate at dealerships was positively correlated with revenues. The
reduced interest cost lowers the carrying cost of inventory and point to a terms bank being
an effective tool for increasing Company XYZ’s market share.
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